Start by pulling out that pile of receipts with a category written at the top of each one. Haven’t written categories on them? Do that now if you can decipher them. Then…

Add up just how much you spent within each category in one month. (I recommend using a spreadsheet program for this (Google Documents has a free one), but anything can work. Use a notebook you have lying around. Write your categories at the top of the spreadsheet (I had 14 categories or so) and then, going down the side of the page write a few months (Oct 2009, Nov 2009, Dec 2009, etc.) Record the total of how much you spent for each category during each month. For example, I may have spent 9,800 yen on “beauty” in September and 1,500 in October. That’s fine. Overtime you’ll see an average and get a realistic idea of what you spend.

Separate your essential spending from your fun spending. Rent is essential. Food is essential. Paying loans is essential. Books are not. Eating out is not. Be honest with yourself about what your bare minimum requirements are. Don’t forget about things like visiting the doctor, which cost money but may not happen every month!

Find out how much money you’ve spent on everything (essential + fun spending). Hopefully it’s less than you make in a month. If it’s not you have some serious soul searching to do (but we’ll get to that. no worries.)

Decide how much you need each month for essential spending (you have my permission to make an educated guess — use the numbers you got from your receipts and bankbook to do this). For me, my electricity varies from 3,000 yen per month to 11,000 yen per month, depending on whether it’s summer or winter, so I’m going to assume that I spend 7,000 yen per month on electricity. My opinion is that it’s better to over-estimate when budgeting for essential items. I don’t want to be without heat one month because I didn’t budget well! (Again, don’t forget to budget a few bucks each month for dental and doctor checkups — as well as any other “maintainence” types of essentials that may not have come up this month).

Figure out how much money is left. Subtract your “essential spending” money from your income. For example: If I get paid 250,000 yen each month and I need 100,000 yen each month for essential purchases, then I know I have 150,000 yen each month to use to pay myself and to use for fun spending.

Okay, that’s enough to do for now. Go out and make your spreadsheet for essential spending and fun spending you did in the past month or two. Then, estimate how much you need to budget for your monthly essential spending. Finally, find out how much money you have left to spend on yourself. We’ll use that number next week and do some fun stuff!

Like this:

When I came to Japan, one of the first things I did was freak out about how expensive everything was. I had to pay key money (mine was $3,000) just to put my foot in the apartment door, not to mention pay rent, buy stuff for my apartment and work — and oh my god, look at the price on that apple! Oh yeah, and since I was fresh out of college I had a pile of school loans that made me sick to my stomach. Awesome.

Well, rather than wallow in self pity, I decided to do something that I was certain would terrify me: I looked my finances square in the face.

The first step of working towards becoming a financially-reponsible adult lies in not being afraid of your money. Stop. Look it square in the eye. And remember money is just math, which may not be exciting, but it’s pretty damn consistent.

This month, if you want to become a Japanese millionaire (by which I mean have 1,000,000 yen) you’ve got to know what you make and what you spend. Here’s how:

Update your bank book. Japanese banks give you a bank book. Find it and make sure it’s updated. It shows what has been deposited into your account (your wages!) and what has been withdrawn (for bills, spending money, etc.)

Save your receipts! (and if you’re really good, make a note when you buy from vending machines or pay for a bus or train, too) Don’t forget your online purchases as well.

Make a “receipt box” and throw your receipts into it for the next month. I’ll get back to you on this in October.

Here’s the idea: If you save your receipts and track your spending for a month, you can look back on it to see how much you spend in a month. (If you want to really do this well, you should also write on your receipts what kinds of purchases you made — “clothing”, “work”, “food”, “gift”, etc. You should choose categories that are meaningful to you personally. Then you can see exactly how you’ve been spending, so if you need to cut back in an area you can easily do so.)

At the beginning of next month I’ll do a post about Step 2 to becoming a Japanese millionaire, but you really can’t do that without having a realistic idea of how much you’re spending! So go, make yourself a place to stash those receipts, and we’ll get back to them next month.

Until then, happy saving!

(P.S. Even if you’re not suffering financially as I was, this is still a great way to learn how to pad your wallet with a little extra yen each month.)